Purpose: Electric system bond proceeds will refund a portion of the
outstanding electric distribution system revenue bonds, series 2007, and
pay the costs of issuance. The bonds will be sold via negotiated sale
the week of Nov. 17.

SECURITY

The electric distribution system revenue bonds are payable from net
revenues of the electric distribution system. The production system
bonds are payable from production system revenues, consisting of
payments from the distribution system.

KEY RATING DRIVERS

COUNTYWIDE ELECTRIC SERVICE PROVIDER: Cowlitz PUD provides electric
service to approximately 48,507 customers in Cowlitz County, WA. The
district maintains two systems: a production system (largely consisting
of the Swift No. 2 hydroelectric project) and an electric distribution
system.

SATISFACTORY FINANCIAL METRICS: The district's 2014 financial metrics
remained generally in line with similarly rated entities. These include
Fitch-calculated consolidated debt service coverage (DSC) and coverage
of full obligations of 1.65x and 1.19x, respectively, and strong
liquidity at 176 days. A 7.5% rate increase in September 2015 should
support stable financial performance over the near term.

LIMITED ECONOMY; CUSTOMER CONCENTRATION: The local economy is limited
with a concentration in wood-related industries and
transportation/shipping. Economic indicators for the district's service
area are somewhat weak. The top two customers accounted for a very high
66.7% of energy sales and 51.9% of energy revenues in 2014. The limited
net margin on sales to these customers lessens the direct financial
effect to a manageable level; however, these customers are among the
county's largest employers and their impact on the local economy is
significant.

LOW-COST POWER SUPPLY: Rates remain relatively low and competitive in
large part due to a favorable purchase power agreement with the
Bonneville Power Administration (BPA), which supplies the bulk of the
district's power.

REDUCED RELIANCE ON WHOLESALE SALES: A series of rate increases since
2009, including a 17.5% increase in 2011, incorporated the cost of the
district's wind generation resources and the loss of very low cost
hydropower resources into the retail rate base, reducing the district's
reliance on wholesale sales to support financial performance.

RATING SENSITIVITIES

SERVICE AREA ECONOMY: An economic contraction, particularly one driven
by the closure of a large industrial customer, could lead to diminished
rate flexibility or financial pressure, negatively affecting the rating.

CREDIT PROFILE

Cowlitz PUD provides electricity to approximately 48,507 customers
throughout Cowlitz County, WA. The district maintains two systems, but
Fitch analyzes Cowlitz PUD on a consolidated basis as the two systems
are closely interconnected. The district has covenanted, on a
take-or-pay basis, to make sufficient payments from the electric
distribution system to support the production system's debt service
costs.

IMPROVED FINANCIAL PERFORMANCE

Financial performance and metrics have improved notably since 2010 as
rate increases, modestly higher wholesale power prices, and less capital
spending have increased DSC levels and bolstered cash balances. Fitch
calculated DSC was 1.65x and 1.59x in 2014 and 2013, respectively.
Fitch-calculated coverage of full obligations, which is adjusted for
purchase power costs (net of Swift No. 2 expenses), was 1.19x and 1.17x,
respectively, in 2014 and 2013.

The district's cash balances have increased significantly over the past
few years, following a period where the district spent a large portion
of its reserves to finance its share of the White Creek and Harvest wind
projects. However, since then, management has prudently made rebuilding
reserves a priority. At the end of 2014, cash balances, including
dedicated rate stabilization funds, totaled $110.6 million (176 days
cash on hand), more than double the ending balance of $41.8 million in
2011 (77 days).

Financial performance is expected to remain stable in 2015 with
management projecting consolidated debt service coverage at 1.64x. The
projected results are supported by the district's conservative budgeting
practices and a retail rate increase of 7.5% (effective September 2015).
The rate increase offsets an effective 5% increase to the district's
cost of power from a recent BPA rate increase, and a reduction in
non-industrial sales, which have been affected by the mild winter.

HIGHLY CONCENTRATED CUSTOMER BASE

The district's customer base is largely residential, accounting for
approximately 89% of customers in 2014. However, electricity sales and
revenues are dominated by industrial customers that make up less than 1%
of the total customer base. Industrial customers as a class accounted
for 78.7% of retail MWh sales and 63% of retail revenues in 2014.

The district's two largest industrial customers - Weyerhaeuser and
KapStone Paper - account for the bulk of retail MWh sales and revenues
at 66.7% and 51.9%, respectively, in 2014. Rating concerns regarding
customer concentration are partly addressed by the limited assets owned
to serve these customers, the pass-through provisions included in the
power-sales contracts, and the relatively thin margins made on these
sales.

Management estimates that the potential rate impact from the loss of
these two customers is about 3.1%. However, the indirect effect could be
potentially more significant as Weyerhaeuser and KapStone Paper are the
county's largest employers, representing approximately 8.4% of total
county employment.

For more information about the district, please see Fitch's new issue
report 'Cowlitz County Public Utility District No. 1, Washington', dated
May 15, 2015.

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